DBRS Upgrades Rating on BBVA Portugal RMBS No. 1

DBRS Ratings Limited (DBRS) upgraded its rating on the Class A notes issued by BBVA Portugal RMBS No. 1 (the Issuer) to AA (sf) from A (high).

The rating on the Class A notes addresses the timely payment of interest and ultimate payment of principal on or before the legal final maturity date.

The upgrade follows an annual review of the transaction and is based on the following analytical considerations:
-- Portfolio performance, in terms of delinquencies, defaults and losses, as of the June 2018 payment date.
-- Probability of default (PD), loss given default (LGD) and expected loss assumptions on the remaining receivables.
-- Current available credit enhancement to the notes to cover the expected losses at the AA (sf) rating level.

BBVA Portugal RMBS No. 1 is a securitisation of Portuguese residential mortgages originated by Banco Bilbao Vizcaya Argentaria (Portugal) S.A. (BBVA Portugal). The mortgage portfolio is serviced by BBVA Portugal, with Banco Bilbao Vizcaya Argentaria S.A. (BBVA) acting as the back-up servicer.

PORTFOLIO PERFORMANCE
As of June 2018, two- to three-month arrears represented 0.0% of the outstanding portfolio balance, down from 0.1% in June 2017. The 90+ delinquency ratio was 0.0%, down from 0.1% in June 2017, and cumulative write-offs were 0.9%.

PORTFOLIO ASSUMPTIONS
DBRS upgraded the Republic of Portugal’s Long-Term Foreign and Local Currency Issuer Ratings to BBB from BBB (low) on 20 April 2018 (https://www.dbrs.com/research/326196/dbrs-upgrades-republic-of-portugal-to-bbb-stable-trend). Following the upgrade, DBRS now applies less sovereign stress in its analysis of Portuguese securitisation transactions. DBRS also conducted a loan-by-loan analysis of the remaining pool of receivables and updated its base case PD and LGD assumptions to 5.0% and 8.1%, from 6.1% and 11.4%, respectively.

CREDIT ENHANCEMENT
As of the June 2018 payment date, credit enhancement to the Class A was 14.7%, up from 10.8% at the DBRS initial rating, and consists of subordination of the Class B notes and the General Reserve.

The General Reserve is funded to EUR 31.1 million and covers senior fees, Class A interest shortfall and principal losses. The transaction also benefits from a Set-Off Reserve which is available to support the Class A notes in the event of the insolvency of the originator. The Set-Off Reserve is currently funded to EUR 51.3 million.

Citibank N.A./London Branch acts as the account bank for the transaction. The DBRS private rating of Citibank N.A./London Branch is consistent with the Minimum Institution Rating, given the rating assigned to the Class A notes, as described in DBRS's "Legal Criteria for European Structured Finance Transactions" methodology.

Notes:
All figures are in euros unless otherwise noted.

The principal methodology applicable to the rating is: “Master European Structured Finance Surveillance Methodology”. DBRS has applied the principal methodology consistently and conducted a review of the transaction in accordance with the principal methodology.

A review of the transaction legal documents was not conducted as the legal documents have remained unchanged since the most recent rating action.

Other methodologies referenced in this transaction are listed at the end of this press release. These may be found on www.dbrs.com at: http://www.dbrs.com/about/methodologies.

For a more detailed discussion of the sovereign risk impact on Structured Finance ratings, please refer to “Appendix C: The Impact of Sovereign Ratings on Other DBRS Credit Ratings” of the “Rating Sovereign Governments” methodology at: http://dbrs.com/research/319564/rating-sovereign-governments.pdf.

The sources of data and information used for this rating include investor reports provided by Deutsche Bank AG, London Branch (the Transaction Manager), and loan-level data provided by the European DataWarehouse GmbH.

DBRS did not rely upon third-party due diligence in order to conduct its analysis. At the time of the initial rating, DBRS was not supplied with third-party assessments. However, this did not impact the rating analysis.

DBRS considers the data and information available to it for the purpose of providing this rating to be of satisfactory quality.

DBRS does not audit or independently verify the data or information it receives in connection with the rating process.

The last rating action on this transaction took place on 14 July 2017, when DBRS upgraded the rating of the Class A notes to A (high) (sf).

Information regarding DBRS ratings, including definitions, policies and methodologies is available at www.dbrs.com.
To assess the impact of changing the transaction parameters on the rating, DBRS considered the following stress scenarios as compared with the parameters used to determine the rating (the “Base Case”):
-- DBRS expected a lifetime base case PD and LGD for the pool based on a review of the current assets. Adverse changes to asset performance may cause stresses to base case assumptions and therefore have a negative effect on credit ratings.
-- The base case PD and LGD of the current pool of loans for the Issuer are 5.0% and 8.1%, respectively.
-- The Risk Sensitivity overview below illustrates the ratings expected if the PD and LGD increase by a certain percentage over the base case assumption. For example, if the LGD increases by 50%, the rating of the Class A notes would be expected to remain at AA (sf), assuming no change in the PD. If the PD increases by 50%, the rating of the Class A notes would be expected to remain at AA (sf), assuming no change in the LGD. Furthermore, if both the PD and LGD increase by 50%, the rating of the Class A notes would be expected to fall to A (high) (sf).

Class A notes Risk Sensitivity:
-- 25% increase in LGD, expected rating of AA (sf).
-- 50% increase in LGD, expected rating of AA (sf).
-- 25% increase in PD, expected rating of AA (sf).
-- 50% increase in PD, expected rating of AA (sf).
-- 25% increase in PD and 25% increase in LGD, expected rating of AA (sf).
-- 25% increase in PD and 50% increase in LGD, expected rating of AA (sf).
-- 50% increase in PD and 25% increase in LGD, expected rating of AA (low) (sf).
-- 50% increase in PD and 50% increase in LGD, expected rating of A (high) (sf).

For further information on DBRS historic default rates published by the European Securities and Markets Authority (“ESMA”) in a central repository, see: http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml.

Ratings assigned by DBRS Ratings Limited are subject to EU and US regulations only.

Lead Analyst: Andrew Lynch, Assistant Vice President
Rating Committee Chair: Christian Aufsatz, Managing Director
Initial Rating Date: 31 December 2015

DBRS Ratings Limited
20 Fenchurch Street
31st Floor
London
EC3M 3BY
United Kingdom

Registered in England and Wales: No. 7139960.

The rating methodologies used in the analysis of this transaction can be found at: http://www.dbrs.com/about/methodologies.

-- Legal Criteria for European Structured Finance Transactions
-- Master European Structured Finance Surveillance Methodology
-- Operational Risk Assessment for European Structured Finance Servicers
-- Master European Residential Mortgage-Backed Securities Rating Methodology and Jurisdictional Addenda
-- Interest Rate Stresses for European Structured Finance Transactions

A description of how DBRS analyses structured finance transactions and how the methodologies are collectively applied can be found at: http://www.dbrs.com/research/278375.

For more information on this credit or on this industry, visit www.dbrs.com or contact us at info@dbrs.com.